Thursday, November 24, 2016

If you unfortunately missed this article and the surrounding
controversy, AA has your back.

Funny thing about the controversy Dr. Romer is not the first
economist to criticize economics, though perhaps his naming and shaming of
specific practitioners is what has the economists’ guild in an uproar.

His paper deals with the “identification problem” which is
tech speak for determining that an equation or model is specified
properly.That is, that the major causal
factors have been identified and their relative causative impacts properly determined.
If these factors have been properly
“identified”, then the economist understands the underlying processes and can
use model to predict the results of certain (policy) actions.

Thus, the model is not only descriptive but also
normative.

Romer levies a savage critique against macroeconomics
spiced with some positively delightful “digs”:

comparison of certain
macroeconomic “principles” to the long-abandoned theory of phlogiston

a call
out of “FWUTVs” (facts with unknown truth values) assumptions that are treated
as facts without any proof-- particularly relevant in this post-truth age

analogies
to dogmatic beliefs or religions where theory “trumps” (I’m allowed to use that
word) the truth

Well worth a read.

Some quotes to whet your appetite.Headings and boldface are AA’s.

One quibble with Dr. Romer. There’s always at least one quibble when AA is
involved!

Economics is not a science as that term is properly
understood.Complex systems cannot be
reduced to descriptive much less predictive models because of the interplay of
causes and the interplay of effects.That
means economics is more a “social science”.

General

“For more than three decades, macroeconomics has gone backwards.
The treatment of identification now is no more credible than in the early 1970s
but escapes challenge because it is so much more opaque. Macroeconomic theorists
dismiss mere facts by feigning an obtuse ignorance about such simple assertions
as "tight monetary policy can cause a recession." Their models attribute
fluctuations in aggregate variables to imaginary causal forces that are
not influenced by the action that any person takes. A parallel with string theory
from physics hints at a general failure mode of science that is triggered when
respect for highly regarded leaders evolves into a deference to authority that
displaces objective fact from its position as the ultimate determinant of scientific
truth.”

Assume Your Way to Truth

“Relying
on a micro-foundation lets an author can say, ‘Assume A, assume B, ... blah
blah blah .... And so we have proven that P is true.’ Then the model is
identified”

Comparison to the Theory of Phlogiston

“Once
macroeconomists concluded that it was reasonable to invoke an imaginary forcing
variables, they added more. The resulting menagerie, together with my 5 suggested
names now includes:

A general
type of phlogiston that increases the quantity of consumption goods produced
by given inputs An
"investment-specific" type of phlogiston that increases the quantity
of capital goods produced by given inputs

A troll
who makes random changes to the wages paid to all workers

A gremlin
who makes random changes to the price of output

Aether, which increases
the risk preference of investors

Caloric, which makes
people want less leisure

With the
possible exception of phlogiston, the modelers assumed that there is no way to
directly measure these forces. Phlogiston can in measured by growth accounting,
at least in principle. In practice, the calculated residual is very sensitive to
mismeasurement of the utilization rate of inputs, so even in this case, direct measurements
are frequently ignored.”

Seven Characteristics of String Theorists (Physics) and Comparison
to Macroeconomists

“Tremendous
self-confidence

An
unusually monolithic community

A sense of identification with the group akin
to identification with a religious faith or political platform

A strong sense of the boundary between
the group and other experts

A disregard
for and disinterest in ideas, opinions, and work of experts who are not part
of the group

A tendency to
interpret evidence optimistically, to believe exaggerated or incomplete
statements of results, and to disregard the possibility that the theory might be wrong

A lack of appreciation for the extent to which a research program
ought to involve
risk

The
conjecture suggested by the parallel is that developments in both string theory
and post-real macroeconomics illustrate a general failure mode of a scientific
field that relies on mathematical theory. The conditions for failure are
present when a few talented researchers come to be respected for genuine
contributions on the cutting edge of mathematical modeling. Admiration
evolves into deference to these leaders. Deference leads to effort along the
specific lines that the leaders recommend. Because guidance from authority can
align the efforts of many researchers, conformity to the facts is no longer
needed as a coordinating device. As a result, if facts disconfirm the officially
sanctioned theoretical vision, they are subordinated. Eventually, evidence stops
being relevant. Progress in the field is judged by the purity of its
mathematical theories, as determined by the authorities.”